modifying or terminating an irrevocable trust under Utah law

June 5, 2013 - Posted by: admin - In category:

taxes - No Responses

An irrevocable trust is usually not subject to change–hence the term “irrevocable.”  However, under the laws of certain states, including Utah, it is possible to modify and even terminate an irrevocable trust.

Per Utah Code 75-7-411, an irrevocable trust may be terminated or modified “upon consent of the settlor and all beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust.”

For example, let’s suppose that Bill and Mary, parents of John and Sally, retain an experienced and competent estate planning attorney to draft an irrevocable life insurance trust (also known as an “ILIT”) designed to hold a life insurance policy on Bill, the proceeds of which will benefit John and Sally.  Sounds reasonable and this type of arrangement is actually quite common.  Lets further supposed that five years after setting up this irrevocable life insurance trust, Bill and Mary decide that they want to change their estate plan, at least this part.  They call their estate planning attorney and ask if there is ANYTHING that can be done at this point to change the terms of their ILIT.  Since Bill and Mary were smart enough to retain an experienced estate planning attorney, said estate planning attorney knows that Utah Code 75-7-411 permits changes to be made to an irrevocable trust.  Their estate planning attorney advises Bill and Mary that under Utah law, they have the option of modifying or terminating their irrevocable trust, provided that all beneficiaries of the trust give their consent.  Bill and Mary discuss things with John and Sally, the only beneficiaries under the irrevocable life insurance trust, and obtain the requisite written consent from John and Sally to modify the existing trust.

Please note that even though it is possible to amend or terminate an existing irrevocable trust, that does NOT mean that doing so is a good idea.  As with every estate planning situation, there are many factors to consider and what is proper in one set of circumstances is NOT proper or wise in another set of circumstances.  Among other things, there could be significant tax and other legal consequences resulting from the change or termination of an irrevocable trust.  Therefore, it is absolutely critical that a competent estate planning attorney is retained to advise with regard to these types of matters.

Just as “do-it-yourself” medicine is not a wise endeavor, so also, “do-it-yourself” estate planning is unwise and in the long run, most often is far more expensive than consulting with a competent estate planning attorney at the very beginning and throughout the estate planning process.

It should be noted, parenthetically, that under 75-7-411(5), a court may permit modification or termination of an irrevocable trust without settlor consent (i.e. after settlor has passed away), with the consent of beneficiaries and under certain parameters, even without the consent of all beneficiaries.  Also, Utah Code 75-7-110 (Nonjudicial settlement agreements) also provides a statutory mechanism for out-of-court modifications to trusts, including irrevocable trusts, in some instances.

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